Yum cuts 2014 profit forecast after food scare hits business

Yum Brands Inc, operator of KFC and other restaurant chains, lowered its 2014 earnings forecast after same-store sales fell 14 percent in China in the third quarter due to a food safety scare, Reuters reported Wednesday (Beijing time).

Sales in China, Yum's No.1 market for revenue and profit, are expected to fall again in the fourth quarter at established restaurants on continued fallout from allegations that a former supplier used expired meat.

The company cut its forecast for full-year earnings per share growth to a range of 6 to 10 percent from its prior call for growth of at least 20 percent.

Sales at KFC and Pizza Hut restaurants swooned after a July 20 news story in China alleged supplier Shanghai Husi was using meat past its expiration date.

Yum, which has nearly 6,420 restaurants in China, did not do significant business with Shanghai Husi and quickly cut ties with it and its parent, US meat supplier OSI Group LLC.

But the scandal deterred Chinese consumers, whose confidence has been hit by a series of food safety problems.

Yum's sales at established restaurants in China had risen 15 percent in the second quarter and the country accounted for about 61 percent of its total sales in that period.

OSI is also a major supplier to McDonald's Corp, which reported a 14.5 percent drop in August same-store sales for its unit that includes China.